Refinancing with Earnest
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Both federal and private student loans typically include a postgraduate grace period that allows you six months before entering repayment.
But not all federal loan protections are available from private lenders. From reducing or pausing your payments to opportunities for repayment assistance, federal loans generally feature more safeguards.
So before you prioritize a bank over the federal government — whether you’re in school or are considering refinancing your federal loans — don’t forget about what you might be missing out.
Here are four safety nets with federal loans, as well as the next best alternative offered by private lenders.
1. Reduce your payment with income-driven repayment
2. Postpone payments via mandatory forbearance
3. Receive subsidized interest during deferments
4. Qualify for loan forgiveness
Think twice before replacing your federal loan protections
The U.S. Department of Education allows you to change your initial 10-year, standard repayment plan at any point. Most commonly, you could elect to choose an income-driven repayment (IDR) plan that caps your monthly payments at a percentage of your income and family size.
IDR plans could be a lifesaver if you prefer prolonging your repayment — and accepting the accruing interest — in exchange for a lower monthly payment. You could qualify for a payment as low as $0.
If you get your finances back on track, you could always switch plans again or make extra (large) monthly payments to shorten your repayment.
Next-best alternative: Slow repayment via economic hardship forbearance
Private lenders offer a wide variety of repayment terms before signing your loan agreement. Earnest, for example, allows borrowers to choose from any month interval between five and 20 years, making for 180 possibilities.
Once your loan is disbursed, however, your repayment plan might as well be carved in stone. Most lenders won’t allow you to change your repayment term, though you could slow your repayment via economic hardship forbearance (or make extra payments to reach the finish line faster).
The Rhode Island Student Loan Authority is a rare example of a nonfederal lender that offers a form of IDR for in-school and refinanced loans. Refinancing company SoFi also offers a modified version of IDR, but only for borrowers experiencing hardship.
Given the one-size-fits-all nature of federal loans, the rules are often black and white for every borrower. To pause your repayment, for example, the education department lays out:
- 8 scenarios (including being enrolled in graduate school) in which you could defer your loan repayment for up to 3 years
- 4 reasons (including unemployment) for which you could request a general forbearance of up to 12 months at a time
- 6 cases (including being in a medical residency program) in which you would qualify for a mandatory forbearance of up to 12 months at a time
Each measure would require filing an application (and, potentially, supporting documentation) with your loan servicer. But because the eligibility criteria are spelled out, you shouldn’t have to wonder whether your request for postponement will be approved or denied.
Next-best alternative: Apply for economic hardship forbearance
Many lenders offer a bevy of in-school repayment options, including full deferment. Unfortunately, they’re not so flexible once you leave campus.
Instead of the chance to change repayment plans, private lenders often offer more limited forms of deferment and forbearance, particularly in cases of economic hardship. Ideally, you’ll talk to your (prospective) lender about its support programs before you need them.
Borrowers who demonstrate financial need — perhaps they have an Expected Family Contribution near zero — qualify for direct subsidized loans. They’re subsidized in the sense that the education department covers the interest when you’re enrolled or in a grace period or deferment.
Say you borrow $5,500 for your junior year and are due to repay it with a 5.05% interest rate. If the loan is subsidized, you’d see the same balance after graduating and upon the conclusion of your grace period. If it were unsubsidized, on the other hand, you would be looking at an outstanding balance of $6,194 once you entered repayment, according to our loan deferment calculator.
Next-best alternative: Make fixed or interest-only payments for a set period
There are no subsidized loans among private lenders. Walk into any bank or credit union with that expectation, and you’ll walk away disappointed.
The second-best option is to make small, voluntary payments toward your debt before you enter repayment. College Ave Student Loans, for example, offers multiple in-school repayment options, including $25 or interest-only monthly payments.
Even these smaller payments could go a long way. Say you want to make interest-only payments on the unsubsidized version of that $5,500 debt mentioned above. By sending $23.15 a month to your loan servicer, you could stop your balance from growing.
There are many ways to receive partial or full cancellation of your federal student loans. Teachers working in low-income schools and public and nonprofit employees could have their remaining balance forgiven after serving in their fields for a set period. Also, borrowers in a dozen professions could have their Perkins loans wiped away after meeting specified criteria.
You could have your loans similarly discharged for several other reasons, including:
- When your school shutters while you’re enrolled
- If your school defrauds you
- During a bankruptcy proceeding
- After suffering a total and permanent disability (or death)
Next-best alternative: Forgiveness from your state or employer
Although the education department has frustrated many borrowers by denying or stalling acceptance on forgiveness applications of many kinds, at least their forgiveness programs exist.
Beyond nominal rate reductions for enrolling in autopay, private lenders don’t contribute or cancel your monthly payments — except in the case of the borrower’s disability or death.
That’s not to say you couldn’t find loan repayment assistance programs elsewhere. Look to your state government’s education agency or your employer, which might offer forgiveness or payment matching for both your federal and private loans.
Federal direct loan consolidation — the act of grouping your old loans into one new loan — isn’t a protection as much as it is an added feature.
But student loan refinancing, which — ideally — allows you to consolidate your federal and private loans at a lower interest rate, could strip all your federal loans’ safeguards.
So before refinancing your old debt — or borrowing private loans for your next semester — keep in mind what you’d be losing from the federal government. Unless the next-best alternative offered by a private lender is good enough, you might be wise to stick with Uncle Sam.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|